Over the course of the past month, May 2022, the NFT market has literally imploded. It was only in November 2021 that the total market cap of the entire NFT market was estimated to be $23 billion dollars (CoinMarketCap). A figure that is greater than the market cap of 63% of the S&P 500. However, today it is just north of $10 billion. The number of NFT sales and the average NFT sale price have both decreased in tandem with cryptocurrency market in general. So we have to ask the obvious….has the NFT bubble finally burst?
Clearly it has. Of course by now we’ve all heard the unfortunate NFT resale struggles of wealthy crypto entrepreneur Sina Estavi who paid 2.9 million for an NFT of Jack Dorsey’s first tweet only to receive resale value $14,000 a few short months later. Or how can we forget Doggy #4292, an NFT curated by Snoop Dogg that went to auction for an astounding $25.5 million dollars. Yet, only one month later it’s highest bid was a sobering $210.
But the evidence isn’t just anecdotal. The daily number of active NFT wallets has dropped considerably (only 3,900) down from a November peak (12,000). But if we pull back up for a minute, ignore the hype and consider all the potential upsides; we can see the stabilization or at least the maturation of this (frankly) insane marketplace.
First of all, despite the general downturn in the beginning of 2022 some sectors of the NFT market proved to be remarkably resilient. Crypto-Collectibles alone have proven to be the overall dominant force in NFT sales since April. Much of these sales are driven by the more well-known, well-established “blue-chip” NFT groups and their projects. Moonbirds, a widely sought after collection of 10,000 owls (yes..this is real) pulled in $500 million dollars upon its launch. Otherdeeds, NFTs which represent land deeds for a metaverse project called Otherside, generated $320 million dollars in sales for Yuga Labs (the creators of Otherside).
Another sector with surprising staying power can be found among Sports NFTs. According to a McKinsey analysis, at their peak in February Sports NFT sales raked in around $138 million weekly. However, sales still remain quite strong despite an overall downtrend in the market. Furthermore, deals between NFT groups / NFT creators, Sports teams and even individual players are continually in the works.
Is this the Maturation Phase?
There are terribly convincing reasons to believe that the current NFT downturn is a blip rather than a long-term slow down. First, the NFT market’s troubles coincide well with the downturn in the cryptocurrency market (crypto winter) in general. In addition, Axie Infinity, a game based on the play-to-earn model that generated 1.3 billion in NFT sales last year (7 percent of the entire NFT market) was struck with a $620 million hack which (obviously) caused much turmoil in the overall NFT market. Yet, these snafus could be steps in right direction. Financial gurus from all walks of life have predicted the painful but necessary purge of useless blockchain projects that must occur in order to facilitate the technologies full adoption. Let’s hope their right.